FOCUS: FINANCIAL PR/INVESTOR RELATIONS - Influential individuals Corporations are realising that the internet has unlocked doors for small investors, freeing up access to information and making it easier to galvanise themselves into group actions.

The internet is a beautiful thing. It can also be a downright nuisance.

The internet is a beautiful thing. It can also be a downright

nuisance.



It may be an ideal investor relations tool but it has also opened a can

of worms as to how companies deal with individual investors, who now

have the same access to company information as institutional

investors.



UK companies are relatively new to IR compared to their counterparts in

the US. Some of the larger FTSE 100 stocks have had IR departments for

over a decade but it is only in the last few years that the majority

have begun to develop sophisticated programmes along the lines of those

on the other side of the Atlantic.



Not surprisingly, most companies have concentrated their efforts on

their institutional shareholders, preferring to spend an hour with one

fund manager whose investment decision can have a real impact on stock,

to chasing after thousands of private investors each with a tiny

holding.



Richard Bowler of College Hill’s investor relations unit says the

potential for pressure groups to heighten the need for well-managed

communication with investors is long established, ’but recent

privatisations and demutualisations have made the need all the more

apparent in cases such as utilities companies and new bank, where

private shareholders may also be customers. The challenge has

undoubtedly been accelerated by the internet-driven information

explosion.’



Chris Milburn, head of IR at Centrica and current chairman of the

Investor Relations Society, agrees it can be difficult to balance the

desire to treat all shareholders equally with the resources available.

Centrica, best known for its British Gas and AA brands, has some 1.3

million individual shareholders. ’The sheer cost of communicating

directly with them is quite an issue,’ says Milburn, who says Centrica

is also well aware that most of them are also customers. ’We want to

communicate with them but there’s a trade-off between administration

cost and communication.’



Centrica appears to treat its individual investors with respect, but the

regulators are on the warpath against many other companies that have let

individual shareholders become very much second best.



The Securities and Exchange Commission in the US recently stressed in

its Regulation Fair Disclosure that listed companies have to treat

individual investors on an equal footing with institutional fund

managers. It called for companies to make the conference calls normally

reserved for the professional financial community available to

individual investors over the web. The Financial Services Authority in

the UK is currently debating similar issues.



As Milburn notes, the internet is undoubtedly making it easier for

companies to partially redress the balance. Many companies have already

put information up on their web sites which would previously only have

been available to the professional investment community. The new on-line

investors have thousands of other sites at their disposal to give them

up-to-date stock market news and views. One thing is certain, after

years of decline the number of individual private investors is growing

rapidly.



’The internet is causing many companies to think long and hard about

what they need to do with themselves and their investors,’ says Reg

Hoare, MD at Ludgate. ’Should they be encouraging private investors?’ He

adds that the internet allows companies much easier access to private

investors than they had in the past. For smaller companies which find

themselves ignored by the big institutions, the private investor can be

a godsend.



On the other hand, private investors might be more susceptible to the

whims of chat room rumours.



Now add into the mix the threat of lobby groups and individual investors

clubbing together over the internet and the need for good PR linked more

closely to IR becomes apparent. Many consultants predict that BP Amoco’s

recent problems with Greenpeace over its Northstar Arctic oil rig are

just the tip of the iceberg. Lobby groups are fast cottoning on to the

idea that they can have a real impact on companies by commanding the

support of individual shareholders.



Individuals are also using the ability to ’meet’ over the internet to

combine their small holdings together and force companies into taking

notice. Mark Bunting, head of consulting at London-based internet

strategy agency Infonic, points to a number of examples in the US and

suggests that the UK had better get ready for an onslaught. ’Earlier

this year, two investors discovered that they and other small

shareholders on a Yahoo!



Finance message board owned between them nearly 40 per cent of the stock

in United Companies Financial, a near-bankrupt lending house,’ notes

Bunting.



’They formed an alliance to have a say in bankruptcy proceedings and

recoup some of its losses.’



Examples in the UK of investors clubbing together on-line remain rare

but carpetbaggers have already discovered the power of the net. Standard

Life is currently facing a threat to its mutual status from Fred

Woollard, a Monaco-based fund manager, who has raised support for his

cause on-line.



If Woollard is successful, listed UK companies may well see a rapid rise

in group actions from on-line individual investors.



Indeed, Hoare at Ludgate says that this may be ’no bad thing’. He

suggests that many fund managers have failed to keep close checks on

companies from a corporate governance viewpoint, so if that role now

falls to groups of individual investors then so be it. ’Historically

speaking these have tended to be the environmental protestors and

lobbyists but in future it may well be little groups of investors

complaining about performance.’



Jonathan Clare, managing director of the UK PR group at Citigate Dewe

Rogerson, believes that the rise of the individual investor may lead to

a reassessment of the way companies structure their investor relations

programmes.



’They are not necessarily a threat,’ says Clare. He believes that many

companies don’t yet know what to expect from individual investors or how

to deal with them but the basic rules of dealing with any shareholders

still apply. David Hancock, CEO of Salisbury Associates, which offers

companies solicitation, call centre and helpline services for individual

investors, believes companies have already begun to take individual

investors seriously. ’Private investors are getting more vocal,’ he

says, adding that private investor support has become crucial in times

of contested bids. Hancock points to a number of examples in recent

years - such as LucasVarity’s attempts to move to the US - where a vote

was lost on a few percentage points. ’A lot of these are won or lost at

the margin, and the marginal investor tends to be the private investor.

They can swing a vote.’



All of this raises some fundamental questions as to how companies should

structure the links between their IR and PR functions. Some companies

have always run their IR function with a reporting line to the

communications director or equivalent. However, where investor relations

is seen as a finance function, many IR officers report directly to the

finance director.



With individual investor sentiment likely to be swayed by broader PR

issues, perhaps it is time for a reassessment?



Chris Milburn at Centrica does not think so. He believes most IR

officers are well aware of the wider communications issues and tie in

their messages with their communications colleagues. ’For some

companies, the IR role is better placed within the finance department;

in others it sits quite happily in, say, corporate affairs. As long as

the teams work closely together under a focused set of senior management

then there is little cause for concern.’



Others are not so sure. ’My growing view is that investor relations

should be a subset of corporate communications ,not the finance

function,’ says Simon Brocklebank-Fowler, managing partner of Cubitt

Consulting and an ex-vice chairman of the Investor Relations Society. He

adds that it is not just larger cap companies that have followed the

finance line: smaller caps often leave investor relations in the sole

charge of the finance director which means there is little PR input.

Brocklebank-Fowler believes that the IR/financial PR function should be

overseen from the very top by someone who has an overall view of the

strategic and financial messages.



’The CEO should have absolute ownership of the programme.’



Wherever the responsibility for looking after private investors rests

within in a company, it is clear that their growing numbers and

influence mean it is no longer enough to treat them as poor relations of

institutional investors. The corporate future may be in their hands.





CONCRETE EVIDENCE OF THE VALUE OF SMALL SHAREHOLDERS



Cement producer Blue Circle’s escape from a hostile bid by French group

Lafarge early in May was a gritty fight. Both sides knew it would be

close: Lafarge owned 30 per cent of Blue Circle and needed just 50 per

cent plus one share in voting support to win the day. But a successful

defence by Blue Circle meant it escaped by a whisker with Lafarge

gaining just 44.5 per cent of the vote.



The likelihood of a fight to the end meant that both sides were after

the hearts and minds of private investors as well as the big fund

managers.



Both companies hired specialist firms to call the private investors,

which led to something of an onslaught in the days running up to the

vote.



Blue Circle shareholder Gillian Waddell, for one, was not amused. She

claims that people acting for Lafarge phoned her four nights in a row

prior to the vote. A founding director of new London agency Fuel, she

has been telling media contacts about the experience ever since. She

believes companies need to wake up to the fact that they cannot just

harangue individual investors when they require their support.



’They think a deal is the most important thing ever and that they can

’corporately’ take over people’s lives,’ bemoans Waddell. ’They are

taking advantage of shareholder information to pester people in their

own time.’ She adds that she hopes more individual investors will stand

up and complain in a bid to protect their lifestyles, particularly when

most companies don’t give two hoots about the private investor the rest

of the time.



’Quite a lot of them make it difficult for the lay person to contact the

company to ask questions under normal circumstances. If you’re asking

people to make an investment in your company’s future then you should

provide them with access.’



David Hancock, CEO of Salisbury Associates, which acted as a telephone

solicitation centre for Lafarge during the bid, says most private

investors are grateful that their vote is valued. One of his colleagues

asserts that Salisbury would not have been responsible for calling the

same investor four nights in a row in any case. So what about individual

investors generally complaining about direct calls to their homes to

solicit votes?



’That’s absolute nonsense,’ says Hancock. ’’Our complaint rate is one in

30,000. The truth is most private investors are grateful that companies

are beginning to take them seriously.’





BEAR NECESSITIES PROVE PIVOTAL IN GREENPEACE CAMPAIGN



It was a lesson in how to get world media attention. BP Amoco got a huge

slap on the wrist in April when a Greenpeace-backed resolution at its

annual meeting calling for it to curtail its arctic oil expansion plans

gained 13.5 per cent support - a record level of support for an ethical

issue within the UK.



That was not enough to force a back down, but it was certainly enough to

make the board think hard about the issues. And, crucially, BP Amoco has

since made more of its movement into renewable energy in an attempt to

bring public and individual investor sentiment back on side.



Greenpeace combined forces with socially responsible investor Trillium

Asset Management and a group of individual investors to table the

resolution, claiming that BP Amoco’s Northstar oil rig was a significant

threat to the arctic environment. The campaign behind the resolution

really appealed to journalists and BP Amoco found itself having to react

to the news agenda rather than determining events.



Greenpeace is an old hand at garnering public support. This time it

linked up with Trillium to give it institutional clout and then set

about attracting the support of some 850,000 BP Amoco investors. By

positioning the Northstar as a threat to the local polar bear

population, many individual investors were persuaded to support the

resolution. Institutional investors managing ethical funds were also

brought on board, under pressure from their own guidelines and

investors.



’What’s important to us is the outcome of the campaign,’ says a

Greenpeace spokesman. ’Talking about it just plays into the hands of the

big companies we are campaigning against. It doesn’t progress our

agendas.’ Will Greenpeace be using similar tactics in the future? ’If

we’ve done something once then there’s a good chance that we’ll do it

again.’



Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in